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Just weeks after Microsoft released Windows Vista Service Pack 1 (SP1), the company has decided it's not quite time to put its aging Windows XP out to pasture.

The reason? The advent of what are called "ultra low-cost PCs" or ULCPCs, a new category of mobile PCs that don't typically have enough horsepower to run Vista, has created a compelling financial reason to keep the old grey mare out of the glue factory -- at least for now.

"This category is really new and really interesting 'and' we want to help lead it," Kevin Kutz, director of Windows clients at Microsoft (NASDAQ: MSFT) told InternetNews.com.

As a concept, ULCPCs began with non-Microsoft initiatives such as MIT's Nicholas Negroponte's One Laptop Per Child (OLPC). In order to keep the cost down for such machines in developing economies, the original idea was for the laptops to run Linux.

Soon enough, however, Microsoft started trying to entice PC makers involved in such efforts to consider Windows. Vista, at least for now, is too big and too expensive to include with those systems, say analysts. Nothing gets in the way of XP being extended into those emerging markets, though.

Except, of course, XP's planned demise on June 30, 2008. That's the date at which most sales of XP will stop – with the exception of some system builders who have until January 31, 2009.

Then, on Thursday, Microsoft extended the deadline for XP Home, the only edition of XP that gets a temporary reprieve. "Windows XP Home for ULCPCs will be available until the later of June 30, 2010, or one year after general availability of the next version of Windows," a company statement said.

Microsoft is not just looking at devices that sell into emerging markets, however. The company also sees ULCPCs appealing to first time PC buyers in developed markets as well as consumers who already have more full-function PCs who want to add more PCs to their networks. Additionally, officials say over time they see an opportunity in a similar market space for Vista.

In the meantime, Microsoft is looking to ship XP Home pre-installed on devices with limited resources.

"This update to the original plan of record, which was announced in September of 2007, will be accompanied by new hardware specifications for a small segment of flash-based ULCPCs to be able to run Windows XP Home," a second company spokesperson said in an e-mail to InternetNews.com.

Microsoft has not yet named any hardware OEMs who have signed on to use XP Home on ULCPCs. Possible candidates, however, include the Asus Eee PC and Intel's Classmate, Kutz said.

"I think Microsoft sees the 'ULCPC' that Intel is offering is going to be a winner 'and' this smacks of Microsoft going after a market segment they really don't want to lose," Roger Kay, president of researcher Endpoint Technologies, told InternetNews.com.

Meanwhile, many XP users are still waiting for the final service pack for XP, dubbed SP3, although rumors have it coming out sometime in mid- to late-April. SP3 is not officially due until the end of June.